Blog on the Run: Reloaded

Wednesday, June 4, 2014 11:21 pm


Nine years ago today, my father died. He was 75 and a self-employed financial consultant who was still working about 30 hours a week right up until his final illness (acute pulmonary fibrosis), which lasted a couple of weeks before his death.

From an early age, I heard Dad talk about the importance of saving and investing, and I did the best I could to follow his advice. As I got older and better able to grasp the mechanics, he talked about the stock market as the best long-term investment vehicle for retirement (although he did say that once I hit 50 I should start swapping some equities for bonds).

To the best of my abilities, I have followed his advice. I won’t give you numbers, but I’ll tell you the following: I don’t have a ton of ready cash and never have. But were I to die tomorrow, my family would be pretty well fixed, especially considering I was a journalist, and thus not particularly well paid, for most of my career. Like many Americans, I haven’t gotten a dime in retirement matching for coming up on about seven years now, but — although no one can read the future — I think my family and I will be OK assuming I live to 67 and actually get to retire.

But Dad didn’t live long enough to see the mortgage bubble burst. He didn’t live long enough to hear all the revelations about bank and nonbank and insurance-company and security-rating shenanigans on a scale that dwarfed the crimes of the S&L crisis two decades prior. He thought repealing Glass-Steagall was a bad idea, but he didn’t live long enough to see just how bad. For that matter, he didn’t live long enough to see high-frequency trading and the ease with which the practice makes front-running a trade possible.

So although I’m remembering Dad today with warmth and his passing with sadness, for some reason the Dad thought that has been most on my mind today has been: I wonder what he would make of today’s financial markets? Would he still consider it possible for a single, well-informed investor to do OK? Or would he be convinced, as I have been, that most of the market is a rigged game — that there is a club and that most Americans like me aren’t in it?

(And I’m writing from a middle-class prospective. My problems don’t even begin to touch the problems of the working poor, who are being robbed outright.)

I don’t know what he’d think. All I do know is that while he certainly wasn’t perfect, in his professional life, to the best of my knowledge, he acted with integrity and took seriously his fiduciary duty to his clients. I’m struggling to name a commercial or investment bank that exists today that I’m confident does the same thing.

Friday, August 12, 2011 8:37 pm

If we HAD high inflation and U.S. debt wasn’t downgraded THEN, why is it being downgraded NOW?

Filed under: Evil,I want my money back. — Lex @ 8:37 pm
Tags: , , ,

In the late 1970s, the U.S. had a big problem with inflation — not as big as, say, Argentina, or post-World War I Germany, but by U.S. standards, huge. Inflation topped 11% in 1979.

Did Standard & Poor’s and the other ratings agencies downgrade the federal government’s debt back then? Why, no, they did not. That debt remained AAA grade, just as it did up until the other day.

But … but … but … the reason Standard & Poor’s downgraded U.S. debt the other day was because they were afraid the national debt was getting out of control and would lead to inflation, right?

Well, that’s what S&P implied, and it’s certainly what the national media and economically illiterate right-wing nutjobs wanted us to think. However, the fact of the matter is that 5-year Treasury notes are currently paying negative real interest rates. It is literally cheaper right now, taking (lack of) inflation into account, for the government to borrow money for five years to do stuff than to pay cash for that same stuff. And that’s the markets’ doing, not the government’s. So, clearly, bond markets do not perceive inflation to be a near-term or medium-term threat.

So why did S&P downgrade U.S. debt? Yves Smith offers a plausible explanation: payback:

The S&P downgrade looks to be politically motivated. The President had several routes by which he could have circumvented the debt ceiling restriction and almost certainly would have used one of them if the debt ceiling talks had dragged on so long that it became difficult to make interest payments out of tax receipts. McGraw Hill, which owns S&P, is headed by Terry McGraw, a prominent figure in the Business Roundtable, which has stated that it wants Social Security privatized. S&P has used its muscle to its advantage in the past, such as a state effort in Georgia in the early 2000s which would have reined in predatory lending and in turn reduced the issuance of private label mortgage backed securities. Rating them was a very profitable business for all the rating agencies. S&P torpedoed that initiative by refusing to rate bonds with Georgia loans in them. That forced Georgia to back down and killed other state efforts underway. Had these laws been in place, it is almost certain the subprime crisis would not have risen to a global-economy-wrecking event.

We now live in an era in which some of our most powerful institutions are perfectly willing to blow up the economy for short-term gain and the opportunity to place bets on the ensuing disaster. The rule of law, if you are big enough and rich enough, has gone by the boards; the umpires, to use Chief Justice John Roberts’s metaphor from his perjured confirmation testimony, have gone beyond calling balls and strikes to taking a side.

That side is not the president’s. The greater problem is that unless you are fabulously wealthy, it is not yours, either.

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